ACCT 439: Chapter 13: Comlet Paper Graded A+

Chapter 13 - Current Liabilities and Contingencies Chapter 13 Current Liabilities and Contingencies True / False Questions 1. Some liabilities are not contractual obligations and may not be payable in cash. True Fal ...

Chapter 13 - Current Liabilities and Contingencies Chapter 13 Current Liabilities and Contingencies True / False Questions 1. Some liabilities are not contractual obligations and may not be payable in cash. True False 2. Amounts withheld from employees in connection with payroll often represent liabilities to third parties. True False 3. A customer advance produces a liability that is satisfied when the product or service is provided. True False 4. Long-term debt that is callable by the creditor in the upcoming year should be classified as a current liability only if the debt is expected to be called. True False 5. The concept of substance over form influences the classification of obligations expected to be refinanced. True False 6. Under IFRS, a liability that is refinanced after the balance sheet date but before the financial statements are issued would typically be classified as a current liability. True False 13-1 Chapter 13 - Current Liabilities and Contingencies 7. Warranty expense is recorded along with the related liability in the reporting period in which the product under warranty is sold. True False 8. For a loss contingency to be accrued, the claim must have been made before the accounting period ended. True False 9. A company should accrue a liability for a loss contingency if it is at least reasonably possible that assets have been impaired and the amount of potential loss can be reasonably estimated. True False 10. A disclosure note is required for all material loss contingencies for which the probability of loss is reasonably possible. True False 11. Under IFRS, the term "probable" indicates a threshold of probability that is substantially higher than a 50/50 chance. True False 12. Under IFRS, if it is probable that a contingent liability will result in a future payment but there is a range of equally likely amounts that will be paid, the midpoint of the range should be accrued as a loss. True False 13. The cost of promotional offers should be recorded as expenses in the accounting period when the offers are redeemed by customers. True False 13-2 Chapter 13 - Current Liabilities and Contingencies 14. Unlike the Social security tax there is no maximum wage base for the Medicare portion of the FICA tax. True False 15. State and Federal Unemployment Taxes (SUTA and FUTA) must be withheld from employees' wages. True False Matching Questions 16. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the most correct term by placing the letter designating that term in the space provided. 1. Short-term note Liabilities when received. ____ 2. Warranty liability Confirming event is likely to occur. ____ 3. Advances from customers A loss contingency accrued in the period of related sales. ____ 4. Probable Most common temporary financing arrangement. ____ 5. Secured loan Requires collateral. ____ 17. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the most correct term by placing the letter designating that term in the space provided. 1. Sales tax payable Due on demand. ____ 2. Callable Contra liability. ____ 3. Accrued liabilities A third party liability. ____ 4. Discount on notes payable Accrues with passage of time. ____ 5. Interest payable Expenses incurred but not yet paid. ____ 13-3 Chapter 13 - Current Liabilities and Contingencies 18. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the most correct term by placing the letter designating that term in the space provided. 1. Noncommitted lines of credit Liabilities until refunded. ____ 2. Gain contingencies More than remote but less than likely. ____ 3. Customer deposits Face amount x rate x time. ____ 4. Reasonably possible Not recorded until realized. ____ 5. Interest paid on debt Informal borrowing agreements. ____ 19. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the most correct term by placing the letter designating that term in the space provided. 1. Subsequent events Exceeds the stated rate on discounted notes. ____ 2. Unasserted claims May include items that are not legal liabilities. ____ 3. Accounting liabilities Sales of receivables. ____ 4. Factoring Evaluated for recognition only if an unfavorable outcome is probable. ____ 5. Effective interest Occur in the current year before prior year financial statements are issued. ____ 20. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the most correct term by placing the letter designating that term in the space provided. 1. Noninterest-bearing notes Use accounts receivable as collateral. ____ 2. Committed lines of credit Often require compensating balance. ____ 3. Loss contingencies Only formal credit instrument is the invoice. ____ 4. Pledging arrangements Effective interest higher than stated interest. ____ 5. Accounts payable Recorded if probable and amount is known or reasonably estimable. ____ 13-4 Chapter 13 - Current Liabilities and Contingencies 21. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. 1. Disclosure notes Present value of interest plus present value of principal. ____ 2. Commercial paper Required for contingencies. ____ 3. Current liabilities Payable with current assets. ____ 4. Usual valuation of longterm liabilities Short-term debt to be refinanced with long-term bonds payable. ____ 5. Long-term liabilities Avoids registration with SEC. ____ 22. Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. 1. Liability A material gain contingent on a future event that appears exceedingly likely. ____ 2. Disclosure note only A penalty assessment that probably will be asserted by the EPA, in which case a determinable payment is probable. ____ 3. Liability Unassessed penalty with a reasonable possibility of being asserted, in which case a determinable payment is probable. ____ 4. Not reported An extremely likely loss due to an event that occurred previously and whose amount is unknown but estimable. ____ 23. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms related to accounting for contingent liabilities under IFRS. Match each phrase with the most correct term by placing the letter designating that term in the space provided. 1. contingent gains are not accrued How present values affect the measurement of contingent liabilities under IFRS. ____ 2. more likely than not Definition of "probable" under IFRS. ____ 3. mid-point of the range how IFRS refers to an accrued liability that would generally be referred to as an "accrued contingent loss" under U.S. GAAP. ____ 4. report at present value whenever time value of money is material The amount IFRS would accrue given a range of equally likely outcomes. ____ 5. provision Treatment of contingent gains under IFRS. ____ 13-5 Chapter 13 - Current Liabilities and Contingencies 24. Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. 1. Disclosure note only Estimated warranty cost. ____ 2. Not reported A material gain contingent on a future event that appears extremely likely to occur in three months. ____ 3. Current liability Unasserted assessment of penalty that probably will be asserted, in which case there would probably be a loss in six months. ____ 4. Current liability Unasserted assessment of penalty with a reasonable possibility of being asserted, in which case there would probably be a loss in 13 months. ____ 5. Current liability A determinable loss from a past event that is contingent on a future event that appears extremely likely to occur in three months. ____ Essay Questions 25. Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. 13-6 Chapter 13 - Current Liabilities and Contingencies 26. Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. Multiple Choice Questions 27. The most common type of liability is: A. One that comes into existence due to a loss contingency. B. One that must be estimated. C. One that comes into existence due to a gain contingency. D. One to be paid in cash and for which the amount and timing are known.